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- After the BitMEX enforcement action, are there any other non-compliant trades on the CFTC radar? “Maybe,” said President Heath Tarbert.
- In an appearance Wednesday, the regulator broadly referred back to his SEC colleagues on the question of whether ether in a proof-of-stake version of Ethereum would be a stock or a commodity.
- Likewise, it has bet on DeFi.
“I’d just like to basically say how impressed I am with Ethereum, period, period.”
No, he is not a Silicon Valley investor. This was Heath Tarbert, chairman of the Commodity Futures Trading Commission (CFTC), who showed a sophisticated understanding of blockchains during a live interview at CoinDesk’s virtual invest: ethereum economy conference on Wednesday.
In a chat with CoinDesk Chief Content Officer Michael J. Casey, Tarbert discussed how Ethereum and decentralized finance (DeFi) fit into U.S. securities and commodities laws, as well as the agency’s recent enforcement actions and potential benefits and risks of the migration of financial assets to distributed networks.
The “chat on fire” picked up where a similar conversation left off last year: how Ethereum and its planned shift to a proof-of-stake consensus mechanism could fit with US commodity laws.
“I’m not willing to necessarily say that” governance through staking would definitely put Ethereum 2.0, the next reboot of the world’s second largest blockchain, into a stock ranking, he said. “It’s still decentralized in a way that your typical business or even a cryptocurrency that really has a company behind it” isn’t.
Ether (the native cryptocurrency of the blockchain) right now is considered a commodity, similar to bitcoin, the only other cryptocurrency with a regulated derivatives market in the United States.However, it is unclear whether a proof-of-stake network would be treated similarly by US law or if it more closely resembles a title.
“The more decentralized it becomes over time and the more effectively it works on its own, the more likely it is to fall into the commodities category and not securities. [group]”, Said Tarbert.
This issue is contingent on what the United States Securities and Exchange Commission (SEC) says, Tarbert said.
“We usually refer to the SEC’s opinions on [what is] a stock, so if the SEC says, “This isn’t a stock,” then we’re generally confident we can go in at that point and say it’s a commodity, “he said.
Decentralized finance
Tarbert has been an outspoken supporter of the cryptocurrency space since his arrival at the CFTC in mid-2019. Under his tenure, the first Ethereum-based derivative contracts entered the United States, validating a view expressed last year. . More recently, he said that “a large part” of the financial system could end up existing in a blockchain format.
It was in this spirit on Wednesday that he turned to the burgeoning field of decentralized finance (DeFi), where a dizzying array of complex products presented new challenges for regulators. On the one hand, he saw reason for optimism.
“The whole idea of DeFi is really, number one, it’s obviously revolutionary, and I think at the end of the day it could lead to massive disintermediation of the financial system and traditional players,” Tarbert said. “And at the end, [it] it could also reduce systemic risk in some way because we don’t have the financial system concentrated in these large, systemically important institutions globally. ”
Tarbert doesn’t expect this shift to happen immediately, saying it may be “decades” away, but the potential for this kind of disintermediation means that stakeholders should ask questions about network resilience.
“If we think about it [if] much of our global financial system ends up on Ethereum, so we have real concerns about the theory … what if Ethereum goes down? ” churches.
Tarbert did not provide a definitive answer as to how the assets involved or issued from DeFi projects could adapt to securities or commodity laws, noting that it could depend on what digital contracts do and how tokens are distributed.
When asked about the UNI governance token distributed by Uniswap, Tarbert said it “has some characteristics” of a security but also “significant differences”, not least the fact that the resources were distributed for free.
“If people didn’t necessarily pay for it … then it’s hard to see where there would be an economic loss,” he said. Again, however, the CFTC chairman said this would be something for the SEC to consider.
If regulators aren’t taking action against potential violators of securities laws, private individuals can still bring their own lawsuits, at which point a court should decide, Tarbert said.
Even so-called fair token distributions like Yearn.Finance, where tokens are not set aside for the project’s founding team, are a tough call.
“The problem with the fair launch, which brings out the founders,” he said. But there are still concerns about market manipulation that regulators may still need to assess.
Converting to organic
Making Ethereum more environmentally friendly would be an added benefit from moving to proof-of-stake, Tarbert said during the chat, noting that proof-of-work, the consensus mechanism currently used by the blockchain (and introduced by Bitcoin) requires energy-intensive machinery.
“There are problems with mining, of course, so number one [is] environmental issues, “he said.” And so I think we’ve generally been supportive as a broader issue in reducing … the environmental footprint, and the move to proof of participation clearly does that. “
He compared the current transaction costs on the congested Ethereum network to the cost of flying across the country compared to buying a car in the 1930s.
“At some point, we have to move in terms of scale and efficiency to address environmental issues but also to address the issue of costs,” he said. “I see proof of stake as potentially useful.”
Book them
The CFTC recently launched a law enforcement action against BitMEX, one of the largest crypto derivatives exchanges in the world. In the allegations unveiled this month, BitMEX is accused of allowing US residents to transact on its platform without registering as a futures commission trader or obtaining other licenses.
BitMEX has also failed to comply with the Bank Secrecy Act in conducting anti-money laundering and anti-money laundering proceedings, according to the CFTC along with attorneys from the US Attorney’s Office for the Southern District of New York.
“I want the US to be a leader in digital assets,” Tarbert said, explaining why the agency pursued BitMEX. “What we want, our desire is to create an environment where innovators in digital asset exchanges can grow here in the US, can come to places like the CFTC and get a license, and can benefit from our regulatory regime. we want to see is the offshore exchanges that are actually violating US law. “
The agency has “an obligation” to pursue non-compliant exchanges, he said. Asked if the agency is looking into other platforms as well, he replied: “I’ll say maybe.”
